Dismissal with immediate effect for competing business activity valid

If an employee acquires a major stake in a rival firm, his employer can issue him with a notice of dismissal with immediate effect.

If an employee acquires a major stake in a rival firm, his employer can issue him with a notice of dismissal with immediate effect.

If it has good cause for doing so, an employer can terminate an employment relationship by issuing exceptional notice of dismissal with immediate effect. We at the commercial law firm GRP Rainer Rechtsanwälte note that this condition may be met if an employee carries out some form of activity for a company that is in competition with his employer. In its ruling of April 12, 2017, the Landesarbeitsgericht (LAG) Schleswig-Holstein [Regional Labour Court of Schleswig-Holstein] held that notice of dismissal with immediate effect is valid if an employee acquires a major stake in a competitor (Az.: 3 Sa 202/16).

In the instant case, an employee of a company had acquired a 50 per cent stake in a rival firm. He had agreed to a restraint on competition in his employment contract. This prohibited the employee from carrying out activities for a company that either directly or indirectly competes with his employer, whether that be on an autonomous, non-autonomous or any other kind of basis. Notwithstanding this, the employee acquired a 50 per cent share in a competitor and subsequently received notice of dismissal with immediate effect for this competing business activity.

The LAG Schleswig-Holstein ruled that the notice of dismissal with immediate effect was valid. The Court took the view that the company in relation to which the employee had acquired a stake was a competitor vis-à-vis said employee"s employer, noting that it had provided services not only to his employer but also third parties. Due to his 50 per cent share, it was said that the employee would have been able to discover that this was the case. The Court stated that the employee had violated the contractual restraint on competition and carried out improper competing business activities, and in doing so given rise to good cause justifying exceptional notice of dismissal.

The Court went on to say that there is no competing business activity if the other firm carries out the contentious activity on a contractual basis for the employer. Moreover, acquiring the status of shareholder in another company does not necessarily constitute a competing business activity. It clarified, however, that this is the case if the companies compete with each other and major influence can be exerted on business operations as result of the employee"s status as a shareholder. The LAG concluded that a 50 per cent stake represented a major influence.

Whether exceptional notice of dismissal is effective always comes down to the circumstances of each individual case. Lawyers who are experienced in the field of employment law can advise employers on matters pertaining to dismissal as well as in relation to other issues under employment law.